At DebtGoal.com we are constantly surprised by the number of people who set goals for reducing debt but keep spending on their cards.  There are a lot of reasons to keep using the plastic:  convenience, rewards, cash flow, etc.  There are endless reasons for using plastic, but only one not to:  it’s nearly impossible to get out of debt if you’re spending on your cards.

We have a friend who decided a year ago that her debt load had reached a critical point and that she was going to finally buckle down and pay off debt.   She called me back a few weeks ago to check in for advice.  In the space of a year, she and her husband had taken out 5 more cards and racked up another $20,000 in debt.  She may be an extreme case, but it’s hard to increase your credit card debt if you don’t spend on them

The truth is that people tend to spend more when they spend with plastic.  Various studies have tried to quantify this impact, but they all come to the same conclusion:

1. A Dunn & Bradstreet study found that people spend 12-18% more when using credit cards than when using cash.
2. McDonald’s found that the average transaction rose from $4.50 to $7.00 when customers used plastic instead of cash.
3. Professors at the Sloan School of Management at MIT found that study subjects were willing to pay up to 100% more for identical purchases when they pay with plastic rather than cash.
4. USA Technologies (2008) found that customers purchased items costing 33% more when they purchased with credit vs. cash.

Why is this?  They reduce the pain of payment by deferring the costs of spending:

1. Paying for the product or service is put off when you use plastic. Therefore we don’t do the same mental accounting as we do when we pay with cash.
2. When we buy several things on a credit card at one time and pay in a single transaction, there is no clear signal that we may have overspent on any one of the items.
3. Paying with cash is a visual clue that money is being spent. And while checks don’t have the same effect, writing down the amount physically still imprints on your brain that you are letting go of some cash.

There’s another incredibly practical reason for not spending on your cards: if you don’t spend on your cards on only use your debit card, you’ll find that it’s much easier to balance your spending to your income.  If you consolidate down to only one checking account, you and your spouse just need to monitor spending on this account and make sure you don’t go over.  With many accounts you can get daily balance alerts, making it easy to keep your spending in check.

So quit spending on your credit cards.  Do whatever it takes to get them out of your wallet and make them hard to use.  If you can put distance between the plastic and the urge to spend, you have a better chance.

•         Cut them up
•         Burn them
•         Freeze them in a block of ice
•         Wrap them in duct tape
•         Bury them in the back yard
•         Feed them to your dog

Be creative and have fun with this task.  Challenge a friend of family member to see who can come up with the best way to destroy cards.  If you have a great story or idea, post it here.

Scott Crawford is CEO of DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.